What happens when cloud spend surpasses traditional systems

I made this prediction in 2020, and here we are. Spending on public cloud services is about to hit another milestone as business customers spent $18.3 billion on cloud computing in the first quarter of 2022, up 17.2% year over year, according to a recent report by IDC.

This number includes budgets for shared and dedicated infrastructure. However, a major driver of growth was spending on public cloud services, which made up $12.5 billion (68%) of the total. That subcategory was also up 15.7% compared to the first quarter of 2021, according to IDC. That means that spending on cloud computing services is overtaking traditional IT hardware this year. Wow.

This is interesting for a few reasons.

First, this may be a panic move for those who have dragged their feet in moving applications and data stores to the cloud. Investment is being made on everything cloud these days, so if you’re holding on to more traditional systems, you may find that your expectations that you’ll benefit from R&D innovations on legacy platforms won’t likely occur at the speed they did in the past.

I’ve covered the “forced march” to the cloud here many times, and this milestone just raises the stakes that at the very least, risk will continue to rise for companies that hold on to traditional data center technology. Will they finally move? If they do, will they be moving for market concerns more than their own business requirements? The former is a bit scary if you ask me. Companies that move for the wrong reason and at the wrong pace are finding that success may be tougher than they think.

Second, depending on which analyst firm you talk to, enterprises have anywhere from 30%–45% of workloads and data stores migrated to the cloud as of 2022. So, if cloud spending is surpassing traditional technology spending, that money should be focused on supporting the new cloud workloads. 

If you’re spending more than 50% of your IT budget on cloud and the number of applications is less (or way less) than 50% migrated, then you’re spending more on cloud computing than originally expected. Or you’re just not as efficient. Overspending is more likely.

Not to hit a panic button yet, but let’s say 54% of your IT budget goes to public cloud services annually, and the percentage of the applications and data migrated is at about 42%. Roughly speaking, you could have a value shortfall of 12% when moving to a public cloud.

If that’s the case, I suspect the gap will close given that we’ll get better at using, deploying, and operating public clouds and relying on financial operations to manage costs. But, depending on your own situation, I would consider numbers like this a bit concerning, at the very least. 

Finally, on the positive side, we’re likely better off in the cloud at this point. Not just because traditional platforms are not getting the love they used to from the technology industry, but the fact that the cloud moves faster, and we can move faster in the cloud.

The real reason for moving to the cloud in the first place is not to be 10% more efficient, even though that was the original pitch back in 2010. Cloud technology enables us to be more innovative, agile, and faster moving. That’s where the real payday is, and although most are not there yet, for many it will occur this year. For that, we can celebrate.